If you have a self-managed super fund (SMSF), you can borrow to buy investment property. The investment property could be residential or commercial. Any income that you earn from that investment (i.e. the rent you earn from your tenants) can be used to cover your SMSF loan repayments. Any capital gain that you might make if you sell the property is channelled back into your SMSF.
Superannuation is a very tax-effective environment. Before you retire, the investment earnings of super funds (including SMSFs) are taxed at a maximum rate of just 15%. And any capital gains made on assets (e.g. an investment property) held for longer than 12 months by a super fund are taxed at just 10%. Once you retire, no tax is payable on investment income or capital gains from assets that finance your superannuation pension.
Although SMSF loans have the potential to provide you with some great benefits, there are some key rules that you must follow to comply with Australian superannuation legislation. One of the most important is the sole purpose test. Any investments in your SMSF must be for the sole purpose of providing retirement savings.
This means that you cannot derive a benefit now from an investment property bought through your SMSF. For example, you can’t use it as a holiday house for yourself now or rent it out to a family member. You also can’t use an SMSF loan to buy your own home, but you can use it to buy your own business premises.
How we can help
At Maxima Mortgage, we have a lot of experience with SMSFs. If you’re considering an SMSF loan, we can help you by ensuring that:
- Your SMSF investment property meets all the requirements of Australian superannuation legislation.
- Any investment property purchase is part of a diversified investment portfolio within your SMSF.
- Your SMSF has the cash flow to meet your SMSF loan repayments.
- Your SMSF property loan documentation is set up correctly.
We’ll take the time to understand your situation. We can also:
- Recommend the best possible SMSF loan for your needs.
- Help you to find suitable investment properties through our buyer’s agent service. To build your retirement wealth, you’ll want to ensure that your investment property has the greatest income-producing and capital growth potential. Historically, property prices in Australia’s major capital cities have shown a long-term growth trend.
To find out more about how we can help you, contact us for a free, no-obligation initial consultation.